Encouraging Exports

Context: Government must take steps to sustain the rebound.

Rise in exports:

• India’s merchandise exports went up nearly 200% in April, year-on-year, to $30.21 billion.
• Even compared to April 2019, exports went up by about 16%.
• Sector-wise growth:
  • Growth is led by petroleum products, engineering goods, and the gems and jewellery segments.
  • Agricultural exports are also showing a huge increase – While India exported a record amount of rice last fiscal year, wheat exports too were at a multi-year high.
• Reasons:
  • A large part of the jump can be explained by the lower base of last year.
  • Exports are also benefiting from the pickup in global demand, mainly due to the faster than expected recovery in advanced economies (due to vaccination).
  • Rise in global food prices as recorded by the FAO’s Food Price Index.
• Future prospects: According to the Commerce Ministry, India could achieve the ambitious target of merchandise exports worth $400 billion this year.
• Advantages: Better prices to the producers: For e.g., global steel prices touched $830 per tonne in March, which was the highest in the past 12 years, bringing huge gains to Indian steel exporters.

Challenges to the exports:

• Elusive future prospects: The level of exports in 2019-20 was roughly the same as in 2014-15. Thus, it is likely that the jump in exports would not be sustained in the medium term once global demand stabilises.
• Lack of export competitiveness: For example, as highlighted in the latest Economic Survey, India’s exports went up by a compound annual growth rate of 0.9% between 2011 and 2019.
  • The comparable number for Bangladesh was 8.6%
  • Reason: India has not been able to take advantage of its large pool of labour to push labour-intensive manufacturing and exports, which has led to increased tariffs.
• Issues with trade agreements:
  • Walking out of Regional Comprehensive Economic Partnership has affected India’s participation in global value chains.
  • Comprehensive trade agreements with the European Union and the US also remain elusive.

Conclusion: To boost exports on a sustainable basis (critical for attaining higher economic growth and creating jobs), the government must review and reverse protectionist measures taken over the last few years.